What happens when a construction claim is disputed

By Brian sanvidge

Construction disputes arise as a result of a perceived or real violation of a construction contract and the obligations set forth therein. Construction projects tend to have a large number of stakeholders, property owners, contractors, subcontractors and more, so even a well-planned construction project can run into problems.

Disputes typically arise due to: • Cost overrun • Concealed conditions • Delay • Scope disputes • Surety bond claims • Builder’s risk • Termination • Schedule • Subsurface • Acceleration • Liens • General liability • Default insurance claims • Inefficiency • Environmental issues • Impact • Design and construction defects • Professional liability • Default

If a dispute to your construction contract arises, the first place to look is at the contract itself. the construction contract should explicitly spell out the forum to resolve a dispute. Below are some of the dispute resolution forums often included in construction contracts: • Arbitration • Partnering techniques • Technical Mediations • Technical Arbitrations • Litigation • Mini-arbitrations • Mediation • Early Neutral Evaluations • AAA (American Arbitration Association) • JAMS proceedings • International forums, such as ICC, ICDR and unCItRaL

Construction companies may find themselves on either side of a dispute. When a subcontractor does not meet its obligation of a construction contract, the general contractor may sue the subcontractor for a loss in profits, lost opportunities, hefty fines, a need for increased financing or even additional interest and operating expenses incurred. On the flip side, if a general contractor is unable to deliver on a construction contract, the property owner may bring a claim against the general contractor for any damages they sustained.

When disputes occur, the parties will often find themselves at odds not only over liability but also over the

If a dispute to your construction contract arises, the first place to look is at the contract itself.

Integrity through verification

Anchin specializes in compliance and financial accounting services. With more than 30 years of experience, our team focuses on highly-regulated industries, providing proactive monitorships and investigations. Through the implementation of the best strategies and processes, our efficient data collection and analysis will exceed your needs and ensure your protection.

Brian Sanvidge, CIG, CFE

Principal of Anchin’s Regulatory Compliance & Investigations Group brian.sanvidge@anchin.com

1375 Broadway, New York, NY 10018 • 212.840.3456 • www.anchin.com/rci • @anchincpa

Preventing construction disputes may seem difficult, but certain safeguards can be put into place to do just that. Contractors must establish realistic baseline budgets that are consistent with scheduled construction activities prior to commencing work on a project.

quantification of damages. for this reason, a forensic accountant with experience quantifying construction-related damages is an integral part of the investigation team.

Preventing construction disputes may seem difficult, but certain safeguards can be put into place to do just that. Contractors must establish realistic baseline budgets that are consistent with scheduled construction activities prior to commencing work on a project. It is equally important to have a formal and effective process in place to track actual versus budgeted costs as actual costs incur. By doing this, any cost overruns can be analyzed in real time to determine whether the item was underbid or is being impacted by ongoing project events. another way of avoiding a dispute is by conducting a project cost audit at the completion of a project. a project cost audit measures the cost and performance of completed work against the terms of the contract. Some owners may request a project cost audit as part of usual due diligence, while others may request an audit if they feel there is an issue with the project expenditures. these audits usually involve an independent auditor and members of both the contractor and owner’s audit teams. findings from the audit are presented to the contractor and owner after completion, and any financial discrepancies that are discovered can be discussed, negotiated and, ideally, resolved. the audit’s findings should be helpful for determining (a) a quantitative measurement of the issue—including its monetary impact on the project and (b) whether a perceived problem is truly an issue according to the contract. any lessons learned from a post-construction audit can be utilized on future projects to minimize similar issues in the future.

AbOuT briAn SAnvidge

Brian Sanvidge, CIG, CfE, is the principal and leader of anchin’s Regulatory Compliance & Investigations Group. b

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